Comments

Loved the exam. However I admit to being puzzled at the "gazillion" answer to question two (your 2 (b) ) and resorted to Google to find out more. Having now looked through some of Fisher's speeches, I suspect the answer to question 2 is actually (c) – $99 Trillion. From Fisher's speech "Storms on the Horizon" at the Commonwealth Club of California in May 28, 2008 (http://dallasfed.org/news/speeches/fisher/2008/fs080528.cfm):

"Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent."

Of course Fisher may have called this number "a gazillion" somewhere else, which I haven't found. However I thought it worth mentioning that he seems to have put out a more precise number too, although the relevant discount rate isn't mentioned. This is in the same ballpark as other estimates made before the health care bill revised down the future cost of medicare (although there is a lot of uncertainty at play in both projections).